Every month various beauty industry analysts from The NPD Group write about the latest trends being seen in beauty, based on the firm’s market information and insights. Through a partnership, Beauty News will publish NPD’s blog the day it’s posted to keep you in-the-know. January’s post is by NPD’s Larissa Jensen, Vice President and Industry Advisor, and focuses on what beauty will look like on a global scale, from a retail POV, pricing shifts and more.

The beauty industry is unique in that the products it produces spread joy through self-confidence. This ability to change the way people feel is part of what keeps the industry relevant and important in the minds of consumers. There have been significant changes over the past two years, but the industry could look very different in 2022. Here, some of the factors that will affect the short- and long-term changes ahead.

Global Recovery

While most of the global beauty markets are experiencing growth versus 2020, very few have reached pre-pandemic 2019 sales levels. If certain markets continue to struggle, it will weigh down the larger global revival. The U.S. and China were two countries that grew in 2021 versus 2019, but each country achieved growth in a different way: the U.S. showed how growth can be fueled by smaller categories, like fragrance and hair; success in China revealed the power of the largest category there — namely skin care. The takeaway here is to pay attention to both large and small areas of the market because they both can impact sales significantly. There are many nuances driving the sales performance in specific countries; recognizing those differences will help to identify the geographic areas and categories you’ll need to prioritize to grow.

The Role of Retail

According to the latest data from NPD, brick-and-mortar store sales remain strong, averaging higher spending levels in 2021, compared to both 2020 and 2019. Growth in the online channel has been slowing down, with some weeks posting negative sales performance as the market right sized itself. In the midst of these shifts, direct-to-consumer sales outpaced both brick-and-mortar and online sales. While these are all macro trends, beauty retailing is following the same trajectory. Beauty also experienced the added layer of channel blending, with the new Ulta-Target and Sephora-Kohl’s partnerships that rolled out this past year. Brands need to develop strategies to capitalize on these structural shifts.

Pricing Shifts

The consumer today has been retrained to pay full price across many industries, from cars and homes to gasoline and groceries. This consumer shift has broadly affected the overall retail industry, from price promotion to consumer spending. Most industries are reevaluating promotional strategies coming out of this period but, in beauty, price promotion continues to rise. Brands need to find their sweet spot in leveraging market dynamics to maximize return. Those choosing not to reduce prices must position their points of differentiation to drive demand without promotion.

Demand Levels

Consumers are spending at unprecedented rates, with total retail dollar volumes reaching their highest level in the past four years. Beauty industry sales contributed to the growth at retail this past year. Part of what’s driving the current demand trajectory is the move to experiential spending, which has strong correlations to beauty industry sales performance. However, as total retail demand levels eventually slow, beauty might experience a similar pinch. Recognizing important signals to watch — whether it’s a return to offices, travel, experiences, and events — will help to keep brands ahead of the top-line demand levels for the industry.

Consumer Lifestyle

The common link across every factor driving the beauty industry’s performance is the consumer. The prestige beauty consumer has changed in many ways, but her engagement with beauty products remains, even as it evolves.  The market is overrun with movements, from wellness and self-care to sustainability and diversity — not to mention other hot topics in the media, like social selling and non-fungible tokens (NFTs). But brands need to be in sync with what is most important to their consumers right now. The future of the industry rests on many things, but it mostly lies inside the minds of consumers and the lifestyle they lead.

The prestige beauty industry received a shock in 2020 and proved its resilience in 2021. Even though we are only two years into the new decade, the dramatic shifts that took hold brought about a significant amount of change. Change can be daunting, but it is also full of promise. The industry is in the midst of a transformation and opportunities will continue to present themselves.